Debt/Income Ratio
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after your other monthly debts are paid.
Understanding your qualifying ratio
Typically, underwriting for conventional mortgage loans needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.
For these ratios, the first number is the percentage of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything.
The second number in the ratio is what percent of your gross income every month that can be spent on housing expenses and recurring debt together. Recurring debt includes things like auto/boat loans, child support and monthly credit card payments.
Examples:
28/36 (Conventional)
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, feel free to use our superb Mortgage Loan Qualification Calculator.
Guidelines Only
Don't forget these are only guidelines. We'd be happy to pre-qualify you to help you figure out how much you can afford.
Americn Hero Mortgage can answer questions about these ratios and many others. Give us a call at 754-202-4376.